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October 16, 2003

Software maker Siebel Systems (Quote, Chart) is going on the acquisition trail in its bid to broaden its appeal and reposition itself in the evolving customer relationship management (CRM) market.

In a deal that could be worth as much as $70 million, Siebel said it has agreed to acquire UpShot, a maker of CRM and sales force automation (SFA) software. The deal includes $50 million in cash and potentially as much as $20 million if certain financial milestones are achieved. The deal is expected to close sometime in November.

UpShot has 100 employees and 1,000 customers, far less than the industry leader Salesforce.com, which has close to 8,000 CRM customers in the small- and medium-sized (SMB) business market.

Siebel also made a second, smaller acqusition, purchasing the assets of Motiva, a privately-held maker of incentive management software maker, for less than $3 million.

Siebel said it intends to integrate Motiva's products into incentive compensation software expected to be available in the fourth quarter. Siebel's producta allow customers to craft incentive-based compensation strategies through a variety of software tools.

While Siebel has established itself as a leader in the CRM market for large-scale enterprises, the company has seen its growth slump and it is now trying to diversify into the market for providing CRM software to small- and mid-sized businesses.

Siebel has been hurt by smaller CRM software upstarts which have been successful in selling customers less expensive, monthly online CRM services. Those competitors include Salesforce.com, which has carved a niche in the lower cost, hosted CRM market for smaller businesses.

As part of its bid to make inroads into the SMB market, Siebel recently struck a wide-ranging alliance with IBM (Quote, Chart) for what the partners are calling Siebel CRM OnDemand. The alliance will provide customers with Siebel's CRM software hosted by IBM. However, it is not entirely clear how Siebel will integrate UpShot into its CRM OnDemand services offering.

Siebel may continue on the acquisition trail, given that is has more than $2 billion in cash, which is available for investments.

In related news, Siebel on Wednesday reported a loss of $59.3 million, or 12 cents a share, for its third quarter, which includes some restructuring charges, and compares to a loss of $92.1 million, or 19 cents a share, for the same period a year ago.

Siebel's results were in line with Wall Street estimates, but the company took a restructuring and related charges of $107.2 million in the third quarter. The company said the restructuring moves will result in savings of over $30 million per quarter for the next few quarters.

Siebel's revenues, however, continue to slide, falling 10 percent from a year ago to $321.4 million, and a sequential drop of 3.6 percent, when compared to the second quarter. Software licensing revenues were $110 million, a 13.2 percent drop from a year ago.

Siebel said it expects for revenues for the fourth quarter to be in the $335 million to $355 million range. Thomson First Call analyst consensus estimates are for $353.9 million.

In early October, Siebel it would be cutting 500 jobs, the company did not say it would be cutting anymore workers in the near future.

On Thursday, Siebel Systems was downgraded by Needham & Company to "Underperform" from "Hold." Needham said while Siebel's results were in-line with expectations, it said based on the company?s valuation it believes the company?s recovery will take longer than expected.

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